The low down on implementing Enterprise Management Incentive Schemes (EMIs) in your business

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Lorraine Smith is our Commercial and Corporate Specialist Solicitor at ORJ.

Enterprise Management Incentive (EMI) options are a type of discretionary share option scheme commonly used by smaller private trading companies to incentivise and retain key employees. EMI options are HMRC approved and provide excellent tax benefits for both employees and employers alike.

Implementing Enterprise Management Incentive Schemes: qualifying criteria for the company

EMI’s are subject to various qualifying criteria. To qualify to grant options, a company must be an independent trading company (it must not be a 51% subsidiary) with gross assets of no more than £30 million (at the time options are granted) and a workforce of no more than 250 employees.

It must carry on a qualifying trade on a commercial basis with a view to making profits. In terms of a qualifying trade it should not consist substantially (ie more than 20% of turnover) of certain excluded activities. Broadly these include providing professional services, property development or dealing in securities or other financial instrument or managing property (including nursing homes or residential care homes). ORJ Solicitors can advise you on whether your company meets the relevant qualifying criteria and an alternative employment incentive schemes if you do not.

EMI qualifying criteria for the employee

The employee must satisfy the relevant working time requirement. Three different descriptions of employee can satisfy the requirements to receive EMI options:

  1. Employees who are required to spend more than 25 hours a week in the business of the EMI company, regardless of whatever other economic activity they are required to undertake.
  2. Employees who are required to spend an average of less than 25 hours a week in the business of EMI company if the employment makes up on average at least 75% of the employee’s working time and who are also self employed or work elsewhere.
  3. Employees who have no other renumerative employment or self employment no matter how little time per week they required to spend in the business of the EMI company.
    Benefits of EMI’s to qualifying employees.

Employees satisfying the above criteria may be granted the right to buy shares up to the value of £250,000 at a price fixed at the date of the grant. There is a total limit of £3m that can be subject to unexercised EMI options. There is no limit to the number of employees that can be granted options provided the overall limit is not exceeded. No tax or national insurance contributions are payable for either the grant or exercise of the option, provided the exercise price meets or exceeds market value at the date of grant.

The shares themselves can be with or without restrictions (including non-voting) but must be fully paid up. Performance conditions (set at the date of grant) can provide tangible medium or long term incentives (typically targeted to be achieved 3 – 10 years from the date of grant).

If you are looking to incentivise and retain key stakeholders in your business an EMI could prove ideal. For more information and expert advice on setting up and managing an EMI scheme get in touch with the experts at ORJ Solicitors. We can also review existing incentive schemes or bonus arrangements currently in place to ensure they are tax efficient and achieve your commercial objectives. We are also able to provide expert advice on buyback procedures should any of your key employees wish to exit the business.

For enquiries or for more information on implementing EMI schemes for employees in accordance with HMRC guidelines, please send an email to our Corporate and Commercial Solicitor, lorraine.smith@orj.co.uk, or call 01785 223440.